Following a series of meeting with
stakeholders the Engineering Development Board (EDB) has prepared a long-term
policy for the automobile industry, laying main thrust on exports.

According to the EDB spokesman, the
policy draft has already been submitted to the Ministry of Finance and its
approval is expected by next month. The new policy has been prepared on the
pattern of South Africa offering fixed and guaranteed tariff for 8 to 10 years.
The Ministry of Finance is examining these days as to how adjust the fixed
tariff in its trade policy and the budget prepared on annual basis.

Talking to newsmen recently, Chief
Executive Officer of the Engineering Development Board Mian Imtiaz Rastgar said
the plan has been prepared keeping in view the long term needs of the industry
which give eight-year clear roadmap for investment. The demand for long-term
auto policy has been fulfilled in the form of new plan, which not only gives a
clear timeframe but also tariff structure for about eight years to the industry
for expanding their units.

To a question about a policy for new
entrants, he said the rules are being prepared and government wants to open the
doors for new investors in the auto sector. The new entrants in the automobile
sector would create competition, he added.

Under the plan, manufacturers will be
given a target of producing 0.5 million cars and one million motorcycles by the
end of 2010-11 for which the government would provide all out support to the
industry. The total car production till May 2006 is 143,921 against the total
sale of 140,071, whereas the production of motorcycles, according to EDB
officials, stood at 600,000 units.

This policy will meet the long-standing
demand to discourage import of automobiles. With fixed tariff guaranteed for
about 8 years, the local auto manufacturers have agreed to make fresh investment
to double the production of motorbikes and increase the car production by about
150 percent by 2010. Auto manufactures will have to find market to export about
400,000 cars and vehicles annually. As a matter of fact the primary thrust of
the policy is to encourage local manufacturers to increase investment and
enhance their production not only to meet the demand of the local market, but
also to ensure that a sizeable chunk is available for export.

A source in the EDB told PAGE that the
policy has been prepared on the pattern of South Africa on the strong
recommendation of Renault Group of Paris (France), a renewed name in the world
automobile industry which offered to set up a truck manufacturing plant in
Pakistan for export purposes. The proposal was made last year by Renault Group
and consequently a delegation of experts was sent to study the auto policy of
South Africa, which proved highly successful.

PAKISTAN
AUTO INDUSTRY

ASSEMBLERS

VENDORS

UNITS:

NO OF
UNITS

CAPACITY
IN UNITS

Cars

6

164,000

Organized Sector: 500

LCVs

6

32,500

Buses

5

3,900

Trucks

5

17,500

Tractors

3

50,000

2/3 Wheelers

22

733,000

Total

47

.

Employment

11,000

160,000

Investment

Rs. 26.5 B / $ 0.46 B

Rs. 72 B / $ 1.25 B

Contribution to GDP
(03-04)

Rs. 129.08 B / $ 2.24 B

Rs. 24.81 B / $ 0.43 B

Contribution to Revenue
(03-04)

Rs. 43.5 B / $ 0.75 B

Rs. 8 B / $ 0.14 B

Foreign Exchange Saving
(03-04)

Rs. 60.99 B / $ 1.06 B

Rs. 11.25 B / $ 0.195 B

South Africa entered in the field of
auto-making in 1994. By now vehicle production is the second biggest industry in
South Africa's manufacturing sector. Vehicle exports have grown around nine-fold
since 1994, and now account for nearly 7% of the country's exports. Overall, the
automotive industry, including manufacturing, distributing and servicing of
vehicles and components, is the third largest sector in its economy after mining
and financial services, contributing 7% to gross domestic product. All of the
major vehicle-makers of the world are represented in South Africa as well as
eight of the world's top 10 auto component manufacturers and three of the four
largest tyre manufacturers. South African vehicle exports are projected to rise
strongly through 2006-08, following a record year for South African vehicle
production and sales in 2005. Domestic vehicle sales soared by a record 22% in
2004, followed by a new record 27% in 2005, making the country one of the best
performing automobile markets internationally. Between 1999 and 2005, production
of cars and light commercial vehicles grew from 315,000 to almost half a million
units, while exports more than doubled from approximately 60,000 to 140,000
units. All of the large manufacturers in the country have launched major export
programs in recent years - the latest being General Motors.

Mr. Jeard Etourebet, a senior official
of Renault Group, called upon Imtiaz Rastgar, CEO EDB, on October 19 in order to
exchange views about starting assembly of cars and trucks in Pakistan. He said
that his company was discussing the project with the Pakistani authorities since
November 2005 and "now is the time to finalize things". He added that
the facility would be mainly used for export purposes, therefore, they need
incentives in the shape of tariff concession and duty drawbacks. When asked to
give specific proposals, he said that South African scheme would suit them. He
assured that maximum local components would be used in assembling their
products.

Mr. Imtiaz Rastgar informed that South
African proposal given by him during his last visit was seriously taken up by
the Engineering Development Board and a delegation was sent there to study the
system in-depth. On return, the delegation's recommendations were submitted to
the authorities, which could be reactivated now. He also gave overview of export
potential of the local auto sector and incentives given by the government. He
specially mentioned two SROs of CBR having inbuilt incentives for exporters.
However, he underlined the importance of sustainable long-range policy for
development of the auto sector. He said that EDB was working on a duty drawback
scheme for engineering sector, including auto, with the approval of the CBR.

Automation industry in Pakistan is in a
state of transition. For the past couple of years there has been a turning point
in the Pakistani automobile sector as a whole. In 1999-2000 it suffered negative
growth demand, but in the years to follow it has developed to an extent that in
2004-05 consumer demand has surpassed the available production capacities.

At present Pakistan's automobile
industry is mostly dominated by foreign assemblers. It dates back to 1953 when
the US General Motors set up its first plant. But things really took off in the
1980s and 1990s when the Korean & Japanese giants moved in. Pak Suzuki was
the first, and is still the market leader. Apart from Pak Suzuki, the industry
comprises several other joint venture companies - some domestic firms and
leading automobile manufacturers from Japan and South Korea, namely: Toyota,
Nissan, Mazda, Honda, Yamaha and Kia.

According to the Economic Survey of
Pakistan the automobile group has contributed to the overall growth by an
impressive 30.1 percent. However, ample amount of potential still lies
unutilized, as there exists a huge supply-demand gap in the local consumer
market. As stated by a Yahma official, local assemblers this year have
over-achieved their respective targets. They are rather enjoying the perks by
not enhancing their capacity or production levels - leading the prices of
vehicles to rise due to shortage of supply. However, automobile industries have
doubled and some like Suzuki have tripled their production levels, but the
question at hand is how long will this demand persist? So far there has been an
inflow of remittances and ample amount of leasing thereof demand persisted. To
maintain the growth momentum the export potential has to be tapped. This needs
fresh investment for which auto-makers demand certain guarantees, which have now
been provided.

The new policy, as estimated, would
attract fresh investment of about $5billion with expansion in the existing
facilities as well as new entrants in the field. We are already exporting
motorbikes at the present level of our production of about 600,000 units, which
is slightly surplus to our requirement. Large markets exist in Nepal, Bangladesh
and even South Africa where motorbikes are not manufactured. In the case of
cars, vans and trucks we will have to fight for our share in a highly
competitive environment.